How the Stark Law Waivers Can Help Combat the Coronavirus

April 17, 2020

The Centers for Medicare & Medicaid Services published at the end of March new blanket waivers under the federal physician self-referral law (commonly known as the Stark Law) in response to the COVID-19 pandemic.  The waivers were made retroactive to March 1, 2020 in recognition of the fact that the COVID-19 pandemic likely required some providers to fall out of compliance between the initial onset and the March 30 release date.

The release of these waivers was an important step to permit moving forward with steps that are necessitated by the virus without having concerns about some of the Stark Law implications.  Under normal circumstances, the exacting requirements of the Stark Law will inevitably slow the process of extending compensation to referring physicians.  A simple increase in compensation might require an independent compensation report to support the level of compensation provided.  The Blanket Waivers permit hospitals and other providers to fast-track awarding hazard pay, providing other benefits, and entering into arrangements needed to address the COVID-19 virus without concern they may be violating the Stark Law.  At least during the duration of the COVID-19 pandemic, providers are given additional flexibility to enter arrangements that might otherwise violate the Stark law; at least if there is a COVID-19 purpose justifying the arrangement.

It is important to note that the waivers only pertain to financial relationships that are necessitated by the COVID-19 pandemic.  For example, a waiver might apply to permit a hospital to grant pay increases to physicians who have direct, front line contact with patients who are believed to have the COVID-19 virus.  Without the waiver, hospitals may hesitate to provide these benefits when needed to combat the virus for fear of violating the Stark Law.  But the waivers provide no help with regards to financial relationships that are not necessitated by the virus.  There must be a COVID-19 purpose to the payment or financial relationship for the waivers to apply.

To understand how this benefits providers, it is helpful to have a little background on the Stark Law.  The Stark Law was enacted back in the 1990s out of concern that physicians who owned interests in ancillary service providers have an incentive to over-refer cases to the ancillary provider.

The Stark Law prohibits physicians from referring certain ancillary services known as “designated health services” to entities with which the referring physician has a financial relationship such as a direct or indirect compensation or ownership arrangement.  Additionally, and perhaps most significantly, the Stark Law prohibits the provider of the designated health care services from billing Medicare for the services that result from the prohibited referral.

The regulatory burdens of the Stark Law could seriously impair the ability to meet the challenges of the COVID-19 virus.  For example, physicians and other providers may well deserve to receive hazard pay for serving on the front lines of the virus.  Questions can arise under the Stark Law as to the fair market value of the compensation arrangement with these providers.  Few would question the need to adjust fair market value standards for the risk associated with front line services.  But how much additional compensation is justified to stay within Stark Law parameters?  The Blanket Waivers recognize the need to streamline the process by taking away the regulatory risk factor associated with the additional compensation.

It is important to note that these Blanket Waivers only apply to arrangements that are necessitated by the virus.  The Waivers only protect payments that have a COVID-19 purpose.  This could include payments necessary to secure additional physician services.  There is also indication that payments are made to secure physician services that are not directly related to providing virus related care.  Physician services are broadly defined to include payments for all physician services necessitated by the COVID-19 virus; even if the physician services are not related to the diagnosis and treatment of COVID-19, as long as the services are “in response to the COVID-19 outbreak.”

The Stark Law Blanket Waivers might benefit providers in the war against COVID-19 in a number of ways.  The Blanket Waivers are generally intended to give health care providers, who are on the front lines of the war against the virus, flexibility to permit arrangements to be entered without the same degree of regulatory scrutiny as normally exists.  As mentioned above, one area where flexibility is warranted is in permitting “hazard pay” compensation be issued without fear of running afoul of Stark Law fair market value restrictions.  A hospital may also wish to provide special transportation or other benefits to physicians to help assure their safe and convenient travel.  In many cases, health care providers are sheltering away from their families.  The waivers permit a hospital to pay referring physicians to stay close to the facility or otherwise away from the provider’s family.

Two waivers are directed at physician-owned hospitals.  There is a current moratorium on additional bed expansions in existing facilities as well as the development of new physician-owned hospital facilities.  One of the blanket waivers permits physician-owned hospitals to temporarily increase the number of licensed beds, operating rooms, and procedure rooms, even if such increases would otherwise be prohibited under the Stark Law.  A second waiver permits physician owners to make a personal loan to the hospital without charging interest at fair market value so that the hospital can make payroll or pay vendors.  Both of these waivers require there is a COVID-19 purpose.

Hospitals may wish to expand some of the perquisites offered to COVID-19 staff through temporary expansion of medical staff benefits, such as daily meals, laundry services, child-care, and other support that might be necessitated by the virus.  A waiver is available to permit nonmonetary compensation above the normal yearly caps.  This waiver opens the opportunity to provide basic life support services to physicians who are likely working impossible hours in response to the virus.

The normally strict rules for providing in-office ancillary services have been temporarily relaxed.  The waivers permit group practices to furnish medically necessary MRIs, CT scans, or clinical laboratory services from mobile locations that the group practice rents on a part-time basis, as long as there is a COVID-19 purpose.  This permits these groups to be more reactive where their services are needed in response to the virus.  Much of the most critical service to treat COVID-19 is not provided in the physician’s office.  Many services will be performed in temporary facilities that are not a usual part of a physician’s office, hospital, or other facility.

Physicians in a group practice are permitted to order medically necessary designated health care services that are furnished to a patient by a technician or nurse in the patient’s home contemporaneously with a physician service.  The physician service must be furnished via telehealth by the physician who ordered the designated health care services.  This opens the possibility for a practice to leverage the services of its physicians through use of telehealth.  It also increases the ability of the practice to serve patients in their own homes rather than requiring them to come into a busy office where they have an increased chance of transmitting or catching the virus.

These are just a few examples of how the Blanket Waivers might help providers fighting on the front lines of the virus.  The Blanket Waivers and contemplated arrangements should be reviewed to be certain they are consistent with the Blanket Waivers or an exception from the Stark Law.

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